What is an OHLC Chart?
Let me explain what an OHLC chart is—it's a type of bar chart that displays the open, high, low, and closing prices for each period you're looking at. You should know that these charts are valuable because they capture those four major data points over a period, and many traders consider the closing price the most critical one.
This chart type helps you see increasing or decreasing momentum directly. When the open and close are far apart, it indicates strong momentum, but if they're close together, it points to indecision or weak momentum. The high and low give you the full price range for the period, which is key for evaluating volatility. You'll find that traders watch for several patterns on these OHLC charts.
Key Takeaways
Here's what you need to remember: an OHLC chart shows the open, high, low, and close price for a given period, and you can apply it to any timeframe. The vertical line represents the high and low for that period, while the line to the left marks the open price and the one to the right marks the closing price—this whole thing is called a bar. When the close is above the open, the bar is often colored black, and when the close is below the open, it's typically colored red.
Understanding OHLC Charts
OHLC charts are made up of a vertical line with two short horizontal lines extending to the left and right. The left horizontal line shows the opening price for the period, and the right one shows the closing price. The height of that vertical line represents the intraday range, with the top being the high and the bottom the low— that's your price bar.
When the price rises over a period, the right line ends up above the left because the close is higher than the open, and these bars are often colored black or green. If the price falls, the right line is below the left since the close is below the open, and those bars are usually red.
You can use OHLC charts on any time frame—if it's a 5-minute chart, it shows the open, high, low, and close for each 5-minute period, and on a daily chart, it does the same for each day. These charts provide more information than simple line charts, which just connect closing prices. OHLC and candlestick charts convey the same data, but OHLC uses left and right horizontal lines for open and close, while candlesticks use a real body.
Interpreting OHLC Charts
Technical analysts use several techniques to interpret OHLC charts, and I'll outline some guidelines for you. The vertical height of an OHLC bar indicates the volatility during the period—if it's tall, there's a lot of volatility and indecision in the market.
The position of the left and right horizontal lines tells you where the asset opened and closed relative to its high and low. If a security rallied higher but closed much lower than the high, it suggests the rally weakened toward the end. If it fell but closed much higher than the low, selling pressure eased off.
When the open and close are close together, it shows indecision because the price didn't move much either way. But if the close is well above or below the open, it indicates strong buying or selling during that period.
Bar color matters too—during an uptrend, you'll see more black bars than red, and in a downtrend, more red than black. This helps you gauge trend direction and strength; a series of large black bars quickly shows strong upward movement, which might prompt you to dig deeper.
You should also watch for patterns on the OHLC chart, like the key reversal, inside bar, and outside bar. A key reversal in an uptrend happens when the price opens above the prior bar's close, hits a new high, then closes below the prior bar's low—it signals a strong momentum shift and possibly a pullback starting. In a downtrend, it opens below the prior close, makes a new low, then closes above the prior high, warning of a potential rally.
Example of an OHLC Chart
Take a look at this OHLC chart for the S&P 500 SPDR ETF (SPY). Overall rises are marked by more black bars, like at the start of October. Through mid-November, the price moves slightly higher but mostly sideways, with alternating bar colors.
In mid-November, the price begins to rise, shown by a couple of wider-ranging black bars. At the start of the year, it keeps escalating, dominated by black rising bars. Then at the beginning of February, there are large red bars, much bigger than any in the prior advance—this is a clear sign of strong selling pressure.
Other articles for you
Political economy examines the interplay between politics and economics, including how theories like capitalism and socialism influence real-world policies and global interactions.
The EBITDA/EV multiple measures a company's return on investment by comparing its operating profitability to its enterprise value.
Naked short selling is an illegal practice of selling shares without borrowing them, leading to market risks and banned in many places.
The Troubled Asset Relief Program (TARP) was a U.S
A free market is an economic system driven by supply and demand with minimal government control, emphasizing voluntary exchanges.
Rule 144A allows qualified institutional buyers to trade privately placed securities without SEC registration, enhancing liquidity but raising transparency concerns.
A wholly-owned subsidiary is a separate legal entity fully owned by a parent company, providing control, tax benefits, and operational advantages while maintaining its own identity.
The PEG ratio evaluates a stock's value by dividing its P/E ratio by its earnings growth rate, offering a more comprehensive assessment than P/E alone.
A zero-lot-line house is a residential property built right up to the property line to maximize space and reduce costs.
A Global Depositary Receipt (GDR) is a financial instrument that represents shares in a foreign company, allowing international access to capital and investments.